Pages: i-vi | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb00475.x | Cited by: 0
Pages: vii-viii | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03741.x | Cited by: 0
Pages: ix-x | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb00476.x | Cited by: 0
Pages: xi-xxxviii | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb00477.x | Cited by: 0
Pages: 1-1 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03742.x | Cited by: 3
Pages: 3-27 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03743.x | Cited by: 1575
JAY R. RITTER
The underpricing of initial public offerings (IPOs) that has been widely documented appears to be a shortârun phenomenon. Issuing firms during 1975â84 substantially underperformed a sample of matching firms from the closing price on the first day of public trading to their threeâyear anniversaries. There is substantial variation in the underperformance yearâtoâyear and across industries, with companies that went public in highâvolume years faring the worst. The patterns are consistent with an IPO market in which (1) investors are periodically overoptimistic about the earnings potential of young growth companies, and (2) firms take advantage of these âwindows of opportunity.â
Pages: 29-48 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03744.x | Cited by: 105
BRADFORD CORNELL, KEVIN GREEN
This study extends the literature on the pricing of lowâgrade bonds by examining the performance of lowâgrade bond funds. The findings reveal that over the long run lowâgrade bond fund returns are approximately equal to the returns provided by an index of highâgrade bonds. The relative risks of high and lowâgrade bonds are more difficult to assess. Because of their shorter durations, lowâgrade bonds are less sensitive to movements in interest rates than highâgrade bonds. On the other hand, lowâgrade bonds are much more sensitive to changes in stock prices than highâgrade bonds. When adjusted for risk using a simple twoâfactor model, the returns on lowâgrade bond funds are not statistically different from the returns on highâgrade bonds.
Pages: 49-74 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03745.x | Cited by: 95
MARSHALL E. BLUME, DONALD B. KEIM, SANDEEP A. PATEL
This paper examines the risks and returns of longâterm lowâgrade bonds for the period 1977â1989. We find: (1) lowâgrade bonds realized higher returns than higherâgrade bonds and lower returns than common stocks, and lowâgrade bonds exhibited less volatility than higherâgrade bonds due to their call features and high coupons; (2) there is no relation between the age of lowâgrade bonds and their realized returns; cyclical factors explain much of the observed relation between default rates and bond age; and (3) lowâgrade bonds behave like both bonds and stocks. Despite this complexity there is no evidence that lowâgrade bonds are systematically overâ or underâpriced.
Pages: 75-109 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03746.x | Cited by: 813
CHARLES M. C. LEE, ANDREI SHLEIFER, RICHARD H. THALER
This paper examines the proposition that fluctuations in discounts of closedâend funds are driven by changes in individual investor sentiment. The theory implies that discounts on various funds move together, that new funds get started when seasoned funds sell at a premium or a small discount, and that discounts are correlated with prices of other securities affected by the same investor sentiment. The evidence supports these predictions. In particular, we find that both closedâend funds and small stocks tend to be held by individual investors, and that the discounts on closedâend funds narrow when small stocks do well.
Pages: 111-157 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03747.x | Cited by: 439
CAMPBELL R. HARVEY
In a financially integrated global market, the conditionally expected return on a portfolio of securities from a particular country is determined by the country's world risk exposure. This paper measures the conditional risk of 17 countries. The reward per unit of risk is the world price of covariance risk. Although the tests provide evidence on the conditional mean variance efficiency of the benchmark portfolio, the results show that countries' risk exposures help explain differences in performance. Evidence is also presented which indicates that these risk exposures change through time and that the world price of covariance risk is not constant.
Pages: 159-178 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03748.x | Cited by: 30
DAVID NEUMARK, P. A. TINSLEY, SUZANNE TOSINI
Afterâhours pricing in foreign equity markets of multipleâlisted U.S. securities appeared to be efficient in predicting New York prices in the weeks immediately following the October 1987 crash but relatively uninformative in succeeding months. By contrast, daily changes in New York prices appear to be efficiently incorporated in afterâhours trading on both the Tokyo and London exchanges throughout the sample period. This paper suggests that the asymmetry and temporal variations in crossâmarket correlations are consistent with rational investor behavior in equity markets with nonzero transaction costs and timeâvarying share price volatility.
Pages: 179-207 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03749.x | Cited by: 808
This paper suggests that the interactions of security trades and quote revisions be modeled as a vector autoregressive system. Within this framework, a trade's information effect may be meaningfully measured as the ultimate price impact of the trade innovation. Estimates for a sample of NYSE issues suggest: a trade's full price impact arrives only with a protracted lag; the impact is a positive and concave function of the trade size; large trades cause the spread to widen; trades occurring in the face of wide spreads have larger price impacts; and, information asymmetries are more significant for smaller firms.
Pages: 209-237 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03750.x | Cited by: 482
JOHN H. COCHRANE
This paper describes a productionâbased asset pricing model. It is analogous to the standard consumptionâbased model, but it uses producers and production functions in the place of consumers and utility functions. The model ties stock returns to investment returns (marginal rates of transformation) which are inferred from investment data via a production function. The productionâbased model is used to examine forecasts of stock returns by businessâcycle related variables and the association of stock returns with subsequent economic activity.
Pages: 239-263 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03751.x | Cited by: 36
GRANT MCQUEEN, STEVEN THORLEY
This paper uses a Markov chain model to test the random walk hypothesis of stock prices. Given a time series of returns, a Markov chain is defined by letting one state represent high returns and the other represent low returns. The random walk hypothesis restricts the transition probabilities of the Markov chain to be equal irrespective of the prior years. Annual real returns are shown to exhibit significant nonrandom walk behavior in the sense that low (high) returns tend to follow runs of high (low) returns in the postwar period.
Pages: 265-295 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03752.x | Cited by: 30
THOMAS E. COPELAND, DANIEL FRIEDMAN
We develop a model of market efficiency assuming private information is partially revealed to uninformed traders via the behavior of those who are informed. This partial revelation of information (PRE) model is tested in fourteen computerized double auction laboratory markets. It explains the market value and allocation of purchased information, and asset allocations, better than either a fully revealing information model (FRE strongâform efficiency) or a nonrevealing expectations model; but it takes second place to FRE in explaining asset prices. We conjecture that refined versions of PRE may provide insight into âtechnical analysisâ and minibubbles in securities markets.
Pages: 297-355 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03753.x | Cited by: 1410
MILTON HARRIS, ARTUR RAVIV
This paper surveys capital structure theories based on agency costs, asymmetric information, product/input market interactions, and corporate control considerations (but excluding taxâbased theories). For each type of model, a brief overview of the papers surveyed and their relation to each other is provided. The central papers are described in some detail, and their results are summarized and followed by a discussion of related extensions. Each section concludes with a summary of the main implications of the models surveyed in the section. Finally, these results are collected and compared to the available evidence. Suggestions for future research are provided.
Pages: 357-368 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03754.x | Cited by: 10
Equilibrium in the standard finance model implies that valueâmaximizing firms make taxable equity payouts, even when deferral effectively allows complete tax escape. Since tax deferral and consumption deferral are inherently jointly supplied goods, an excess aggregate supply of future consumption would result if firms followed conventional wisdom and adopted low or zero payout policies to capture tax deferral benefits. The market provides incentives for firms to supply both taxable payouts and capital gains by overriding any tax deferral advantage, just as it provides incentives for equity financing by overriding the corporate tax advantage of debt in âDebt and Taxes.â
Pages: 369-382 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03755.x | Cited by: 29
S. G. BADRINATH, WILBUR G. LEWELLEN
Taxâloss selling by investors in common stocks near the end of calendar years has been proposed as an explanation for the turnâofâtheâyear effect in stock returns. Past analyses of this hypothesis have relied on inferential data. We provide here some direct data from a compilation of over 80,000 actual common stock investment round trips by a sample of 3000 individual investors. We find strong evidence of a concentration of lossâtaking trades late in the year and milder evidence of a concentration just prior to the dates when investments become eligible for longâterm tax treatment.
Pages: 383-399 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03756.x | Cited by: 18
JAMES S. ANG, DAVID W. BLACKWELL, WILLIAM L. MEGGINSON
We provide evidence that taxes affect equity valuation by studying British investment trusts having otherwise identical classes of cashâ and stockâdividendâpaying shares outstanding. We study 1969â1982, a period in which there were two dramatic changes in tax policy. We find that stockâdividend shares, which are convertible into cashâdividend shares, sell at premiums when the tax system favors capital gains and at discounts when the tax advantage of capital gains is reduced. After the 1975 elimination of the tax advantage to stockâdividend shares, we observe that investors convert virtually all stockâdividend shares into cashâdividend shares.
Pages: 401-407 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03757.x | Cited by: 34
JEFFREY F. JAFFE
Academic finance has explored the effect of taxes on corporate capital structure in great detail. By contrast, the effect of taxes on the capital structure of partnerships, REIT's, and related entities has received little attention. The present paper shows that, under general conditions, the values of partnerships and REIT's are invariant to leverage, contradicting the sparse literature in the area. A proof similar to that of ModiglianiâMiller is employed. The effect of real world imperfections is also examined.
Pages: 409-419 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03758.x | Cited by: 421
This paper analyzes the relation between takeover gains and the q ratios of targets and bidders for a sample of 704 mergers and tender offers over the period 1972â1987. Target, bidder, and total returns are larger when targets have low q ratios and bidders have high q ratios. The relation is strengthened after controlling for the characteristics of the offer and the contest. This evidence confirms the results of the work by Lang, Stulz, and Walkling and shows that their findings also hold for mergers and after controlling for other determinants of takeover gains.
Pages: 421-431 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03759.x | Cited by: 35
DAVID A. DUBOFSKY
The postâsplit increase in daily returns volatility is less for AMEX stocks than for NYSE stocks. The exchange trading location is a significant factor in explaining the volatility shift even after stock price and firm size are considered. Furthermore, when measured on a weekly basis, there is no increase in AMEX stocks' returns volatility. These results suggest that measurement errors created by bidâask spreads and the 1/8 effect, and also one or more of the elements that make the NYSE different from the AMEX, explain why the estimated volatility of daily stock returns increases after the ex split date.
Pages: 433-446 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03760.x | Cited by: 21
HASUNG JANG, P. C. VENKATESH
This paper employs a âtransactionâ dataâbase to study whether observed quoteârevisions are consistent with those predicted by the adverse selection and inventory cost theories of the bidâask spread. We find that actual quoteârevisions are consistent with the theoretical prediction in only 25% of the cases. Furthermore, quoteârevision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quoteârevisions of the limit order book and the minimum 1/8 priceâchange rule.
Pages: 447-455 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03761.x | Cited by: 11
This paper extends the APT to an international setting. Specifying a linear factor returnâgenerating model in local currency terms, we show that the usual riskâdiversification rule in the APT does not yield a riskless portfolio unless currency fluctuations obey the same factor model as asset returns. We then consider an arbitrage portfolio whose exchange risk is hedged by foreign riskless bonds. Under the resulting noâarbitrage conditions, the expected returns are not on the same hyperplane, unlike the closedâeconomy APT, unless they are adjusted by the cost of exchange risk hedging.
Pages: 457-465 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03762.x | Cited by: 0
Book reviewed in this article:
Pages: 467-468 | Published: 3/1991 | DOI: 10.1111/j.1540-6261.1991.tb03763.x | Cited by: 1